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Assessing the level of income and expenditure of the commercial bank

Category: Concept of the Bank and the Banking System

The main ways of estimating revenues and expenditures of the commercial bank highlighted the structural analysis, dynamics of incomes and expenses, including certain types, the calculation of financial ratios describing the relative level of income and expenses. Set of methods allows us to give a quantitative and qualitative assessment of revenues and expenses of the bank.

The purpose of structural analysis of income of the bank is to identify the main types of them to assess the stability of income sources and storing them in the future. Analysis is based on actual data for previous years. In foreign practice, is taken during the duration of at least three years.

To assess the stability of income can be divided into two groups. The first group includes operating income — interest income and interest income in the form of fees for banking services, which by nature are stable. Income from operations in the market, ie Income speculative nature, as well as income from revaluation of assets and extraordinary, bearing one-off, are unstable. Unlikely that this second group of income determines the size and growth rate of total income of the bank.

Structural analysis of the costs of the bank is to identify the main types of expenditure, growth factors and growth.

Based on the overall findings of the structural analysis is performed more in-depth study of key revenue and expenditure of the bank.

For example, when analyzing the percentage of income studied its structure in the context of sources (internal loans, interbank loans, securities, leasing and other operations), the effect on the size of outstanding loans and interest rates, the relative level of interest income on certain types of transactions, the dynamics of interest margin. Tendency of falling interest margin is an indicator that the bank embarked on the path of bankruptcy.

Analysis of non-interest income includes items such as a study of its structure in the context of certain types of non-lending services, the likelihood of preserving and strengthening the bank’s position in the market these services, the ratio of cost and price of services, reasons for changes in the value of elements of non-interest income.

Particular attention is paid to detailed analysis of the cost ratio and the percentage of non-interest expense, share the costs with the costs for the functioning of the bank, including administrative costs, costs related to coverage of risks, causes changes in the value of certain types of expenses.

Methods of structural analysis of income and expenditure is to assess the dynamics of their relative values. As these values can be taken in relation to the percentage of total asset balance of the total amount of revenues and expenses, interest income, interest expense interest margin, interest income and expense.

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